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Debt Burden Growing for Older American Households
Debt Payments Relative to Income About
Same as 1992
April 27, 2004 - Older American households in 2001
became a significantly larger percentage of all families burdened with
debt in excess of 40 percent of their incomes, according to a new report
by the Employee Benefit Research Institute (EBRI).
American families with a family head age 55 or
older had approximately the same level of debt payments relative to
income and of debt levels relative to assets in 2001 as they did in
1992. However, EBRI notes that housing is a rapidly growing share of
family debt and a finds a significant jump in the percentage of the
oldest families with the greatest debt burden debt payments in excess of
40 percent of their income.
The EBRI report is based on data derived from the
Federal Reserve's Survey of Consumer Finances. The full article, "Debt
of the Elderly and Near Elderly, 1992 (2001," is published in the April
issue of EBRI Notes and is available on EBRI's Web site (
http://www.ebri.org ).
The article uses two basic measurements of family
debt load: debt payments to income, a ratio that may be high but
acceptable for young families with children, for instance, who have many
years to pay off debts, and debt to assets, a ratio that may be a threat
for older families who depend on their assets to finance their
retirement. Slightly more than half (56 percent) of American families
headed by someone age 55 or older reported having debt in 2001, largely
unchanged from 1992. The average debt level in 2001 dollars for these
families rose over the period, from about $27,500 in 1992 to almost
$39,000 in 2001.
Among the study's findings:
-- The debt ratios of American families headed by
someone 55 or older fell slightly in 2001 from their highest levels in
the 1990s. Relative to assets, the ratio of family debt decreased
somewhat over the period, down to 5.8 percent of assets after hovering
around the 7 percent mark during the prior decade. Relative to income,
family debt payments remained at approximately 9 percent of family
income from 1992 to 2001.
-- Debt ratios vary significantly across family
characteristics, with younger, higher income, more educated, and higher
net-worth family heads having higher ratios of debt. Generally, family
debt as a percentage of assets decreases with the age of the family
head.
-- While overall ratios of debt to both income and
assets remained fairly stable from 1992 to 2001, the composition of debt
between housing and nonhousing debt shifted significantly. Housing debt
represented about 57 percent of family debt payments in 1992 and grew to
about 63 percent in 2001. The EBRI report notes several possible reasons
for this, such as the sharp increase in housing prices in many parts of
the nation in recent years; low interest rates have sparked a flood of
home mortgage refinancing; and home equity loans make it easy to wrap
otherwise nondeductible consumer and nonhousing debt into a deductible
home mortgage loan.
-- There has also been an increase in the
percentage of heavily indebted families-defined as those with debt
payments exceeding 40 percent of income especially for family heads in
the two oldest groups (ranging from 5 to 10 percent of all near elderly
and elderly families).
In terms of retirement security, EBRI President and
CEO Dallas Salisbury noted that, on the whole, the new data are positive
that most older families did not appear to be overburdened by debt in
2001. But he warned: "This changing nature and level of family debt has
obvious and serious implications for the future retirement security of
many Americans. The major implication is more families having at risk
what for many families is their most important asset-their home."
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